Question: Clifford owns 75 percent of AFK, a

> Explain the difference between a tax credit and a tax deduction?

> Explain how exemptions are phased out. Can a taxpayer lose the benefit of all of his or her personal and dependency exemptions?

> Your client, Teresa, claimed a dependency exemption for her elderly father. Upon audit, the IRS agent disallowed the dependency exemption. Teresa received a 30-day letter notifying her of the proposed additional tax liability of $1,050. Teresa is very up

> Explain the gross income test for the dependency deduction.

> What is the purpose of a multiple support agreement?

> Compare the requirements for claiming a dependency exemption for a qualifying child and a qualifying relative.

> Which relatives qualify for purposes of claiming a dependency exemption? Which relatives do not qualify?

> Distinguish the personal exemption from the dependency exemption.

> What is the purpose of adjusted gross income?

> Explain how itemized deductions are phased out. Can a taxpayer lose the benefit of all of his or her itemized deductions?

> Describe the types of expenses allowed as miscellaneous itemized deductions. What limitation is imposed on these expenses?

> Collin pledged a $5,000 gift to his church’s building fund. He has 125 shares of stock that he purchased six years ago for $100 per share. They are currently worth $40 per share. Collin plans to give the stock to the church to satisfy his pledge. What ad

> What are “points” paid on a home mortgage and when are they deductible?

> What are the three courts in which a taxpayer initiates tax litigation to settle a dispute with the IRS? To which courts can adverse decisions from these courts be appealed?

> What is qualified residence interest?

> Lynn paid $12,000 of investment interest expense in a year in which she has the following investment income: $3,000 taxable dividend income, $4,000 taxable interest income, $1,000 from a short-term capital gain, and $4,000 from a long-term capital gain.

> Why is investment interest expense limited to net investment income?

> Which types of taxes qualify as itemized deductions?

> Contrast ceiling and floor limitations for itemized deductions. Provide an example of each.

> Briefly explain two deductions that an individual has for adjusted gross income.

> What are the advantages of a qualified retirement plan?

> High-Tec Corporation offers a stock option plan as an incentive to its employees. Few employees participate in the plan because they do not have the cash necessary to exercise the options. What alternative type of incentive plan can High-Tec offer these

> What is the difference between an NQSO and an ISO?

> A taxpayer moves from Atlanta to Chicago on December 3, year 1, to accept a new job. She wants to deduct her $3,000 in unreimbursed direct moving expenses, but she will not meet the time test by the due date for her year 1 tax return, what are her option

> Provide three reasons why generally accepted accounting principles are not allowed for tax purposes.

> What is the difference between a qualified employee discount and a bargain purchase by an employee?

> Anne is an employee of Marvel Corporation that has an educational assistance plan that pays for up to $5,000 in tuition for any work-related courses. Marvel Corporation also provides free on-premises parking (valued at $50 per month) and free child care

> Explain the difference between a tax protection plan and a tax equalization plan. Which one is usually less costly to the employer?

> James and Dean plan to start a new business but have not decided whether to organize as a partnership, an S corporation, or a C corporation. They are interested in taking advantage of any tax-free fringe benefits that may be available to them. Discuss th

> Identify the type of IRA (Roth or traditional) that would be best for a taxpayer in each of the following circumstances: a. Sharon believes she will be in a higher tax bracket when she withdraws the money in retirement. b. Ken believes he will be in th

> Your friend Mark suggested that you should open an Individual Retirement Account. He said that an IRA is a great way to save because you do not have to pay tax on the income from the investment and you get a tax deduction for your contribution. Is Mark c

> Ricardo is a professional football player. In negotiating his contract for the upcoming season, Ricardo is given two options. He can receive: (1) 12 monthly checks of $325,000 with no deferred payments or (2) $250,000 monthly with the $900,000 balance

> Discuss why corporations frequently offer both qualified and nonqualified retirement plans to their employees.

> Explain why accrual-method taxpayers treat prepaid income differently for GAAP and tax purposes.

> What is the purpose of the foreign tax credit?

> What alternatives are available when a taxpayer receives a 90-day letter?

> AAA Airlines, an accrual-basis taxpayer, frequently issues travel vouchers to customers who voluntarily surrender their reserved seats on overbooked flights. The vouchers are for a specific dollar amount that customers can use to reduce the purchase pric

> What type of penalty or incentive provision do you think would significantly improve compliance with the Internal Revenue Code? Do you think such a provision could be passed?

> What subheadings appear under the “Statistics of Income”?

> How do you make a comment or ask a question about the tax statistics provided by the IRS?

> Go to www.ustaxcourt.gov (the Tax Court site). What is the fee to file a small tax case?

> Go to www.legalbitstream.com (or www.irs.gov/irb/and start with IRB 2011–37) and locate Notice 2011–64. Read the appendix of Notice 2011–64 and determine if dividend income received from foreign corporations located in the following four jurisdictions is

> U.S. citizens residing in certain countries are exempt from U.S. tax on their Social Security benefits. Go to the IRS Web site (www.irs.gov) and locate Publication 915: Social Security and Equivalent Railroad Retirement Benefits to determine which countr

> Go to www.irs.gov (the IRS Web site) and locate Publication 971: Innocent Spouse Relief. What form must be filed to request innocent spouse relief?

> Go to the IRS Web site (www.irs.gov) and locate the publication on travel, entertainment, and gifts. Julie plans to attend a business convention in Costa Rica. Her friend told her that she cannot deduct expenses for attending a convention outside of Nort

> Ace Builders begins construction on a building in January. Its contract specifies that the building must be completed by July 1 or it must pay a penalty of $100 for each day the building is delayed. Ace Builders completes the building on July 31 and pays

> Compare how the United States taxes a U.S. citizen and a nonresident alien.

> Last year, the IRS disallowed a deduction on a client’s tax return when it was audited. The client wants you to deduct a similar item on this year’s tax return.

> Jim was reviewing several of a client’s prior tax returns in preparation for completing the current year’s return. Jim discovered a serious error on the return filed almost three years earlier that would subject the client to $40,000 in additional taxes.

> DEE is an S corporation with 100 shareholders. John, one of these shareholders, gives half of his shares of stock to his new wife as a wedding gift.

> John and Mary filed for divorce in November of the current year. The divorce will not become final until May of the following year.

> In preparing the client’s tax return, Verne must use a number of estimates supplied by his client because the client’s computer records were corrupted and the client has not been able to retrieve the correct numbers in time to file the return by its due

> Bert has developed a position for a client on a potential tax transaction that he believes has approximately a 25 percent chance of surviving in a judicial proceeding.

> Georgia researched a major tax plan for a client. She discovered a case in a circuit that is not in the client’s circuit that is unfavorable to the client. She has also found a revenue ruling that appears to have facts similar to her client’s that sancti

> On his 2012 tax return, Stewart inadvertently overstates deductions in excess of 25 percent of the adjusted gross income on his return. In 2017, the IRS audits Stewart and the agent proposes a deficiency of $1,000.

> Jennifer did not file a tax return for 2006 because she honestly believed that no tax was due. In 2017, the IRS audits Jennifer and the agent proposes a deficiency of $500.

> What is a buy–sell agreement, and how does life insurance facilitate it?

> Two months before the due date for his tax return, Simon provides his accountant with all the information necessary for filing his return. The accountant was overworked during tax season and filed the return after its due date.

> Your client, Barry Backache, suffers from a pain in the neck caused by arthritis. He installed a hot tub in his backyard. His doctor advised him that daily periods in the hot tub would relieve his pain in the neck.

> Ken is single and earns a salary of $60,000 per year. He also receives $4,000 a year in taxable interest and dividend income. Ken would like to contribute the maximum allowable to his company’s qualified pension plan.

> Sarah is single and earns $60,000 in salary. She wants to invest $2,500 per year in an IRA but is not sure which type she qualifies for and whether this would be a better investment than putting her money in preferred stock paying a 6 percent annual divi

> In February, Margaret’s employer asked her to move from the Miami office to the Atlanta office. In March, Margaret spent $900 on a house-hunting trip to Atlanta. She located a home and moved into it in April. Margaret’s employer reimbursed her for all di

> Victor has full-time use of a company-owned Jaguar automobile. This year Victor drove 24,000 miles for business and 10,000 personal miles. His employer does not require him to report his personal mileage but, instead, includes the lease value of the full

> George just accepted a job as an apartment manager and is paid a salary of $28,000 per year. In addition to the salary, he is offered the choice of rent-free use of an apartment or a $500 per month housing allowance. George accepts the rent-free apartmen

> Virginia is the president and founder of VT Corporation. She is extremely devoted to the business, frequently working 70-hour weeks. She did not take any salary from the business for its first two years of operations. She is now receiving a salary that i

> Susan is the second-highest-paid executive for Sanibel Corporation, a publicly traded corporation. Her salary is $1,600,000.

> Gillian and Paul are married and have a son who is a sophomore at the local university. In the current year, they paid $5,000 for tuition and $3,000 for room and board for him. Their adjusted gross income is $95,000, and they are in the 25 percent margin

> What are the four sections of a memo to the file? Explain what each section should include.

> Sabrina pays most of the cost for her Aunt Betty to live in a nursing home. Betty receives Social Security benefits of $8,200 a year (all paid to the nursing home). Betty has no other income so Sabrina pays the remaining nursing home cost of $36,800 a ye

> Jessica invites a 16-year-old foreign exchange student to live in her home for the academic school year. Jessica provides all of the student’s support for that period of time. The student is not related to Jessica.

> Jose is single and a U.S. citizen living in Texas. Jose provides all of the support for his parents who are citizens and residents of Argentina. Jose’s parents are considering moving to and becoming residents of Mexico.

> Carla is single and provides more than 50 percent of the support for her mother who lives in a nursing home. Her mother received $2,000 interest on her State of Florida bonds, $3,000 in dividend income, and $8,000 in Social Security benefits.

> In March, Helen purchased a new home for $140,000. She paid $28,000 cash down and financed the balance with a mortgage for which she also paid $1,800 in closing costs and $1,100 in points. Her interest on the mortgage for the year is $5,300.

> Megan and Sam have a 10-year-old daughter, who is autistic. Megan and Sam pay $16,000 annual tuition for their daughter to attend a special school for autistic children.

> Barry has a chronic back problem that requires that he receive regular therapy in a swimming pool. He purchased a new home with a larger backyard so that he could install a swimming pool. The purchase price of the home was $180,000. The cost of installin

> Liza pays $5,000 for extensive liposuction surgery. Her medical insurance does not cover this expense.

> Last year, after a very bad argument, Holly’s husband moved out and has not been seen since. Holly’s eight-year-old daughter lives with her.

> Anne operates a dog-training business out of her home. She started the business four years ago but has not yet made a profit. She gets all of her business by word-of-mouth and thinks that she might try running some ads in the newspaper to increase her bu

> Are the recipients of gifts and inheritances subject to double taxation? Explain.

> Scott is the CEO of a large corporation in Chicago. He spends the month of August in Wisconsin at his vacation home, where he has a separate structure furnished as an office. Scott uses the office each August for long-range corporate planning because he

> You rent your beach house to your friend, Sarah. Sarah rents her condo in Aspen to you. You each pay a fair rental price.

> In year 1, Sharon loaned her friend Christina $10,000 to start a new business. The loan was documented by a signed note, at market interest rate, and required repayment in two years. Christina appeared successful at first but her office manager embezzled

> Ken is a high school history teacher. Each summer he travels to a different location to further his knowledge of American history. This summer he plans to attend a four-day conference for high school history teachers in Philadelphia. Immediately followin

> Carl is the president of Carlton Corporation. He spends three days testifying before Congress on the impact that proposed legislation has on his industry. In his testimony he states that if the legislation passes, he will have to lay off 20 percent of hi

> Ken receives interest income from Province of Ontario (Canada) bonds.

> Sharp Corporation has $250,000 in assets and $300,000 in liabilities. Sharp negotiates a deal with one of its creditors to write off $20,000 of the $60,000 owed to the creditor.

> Bill and Susan are planning to divorce. Their daughter, Melissa, will live with Susan. Bill has offered to pay Susan $1,000 per month for eight years.

> While diving in the Florida Keys on vacation, Gillian finds a gold bar from a sunken ship.

> In December, year 1, Sid’s Body Shop (an accrual-basis taxpayer) repaired Lisa’s car and was to be paid $2,000 by her insurance company. Lisa was not satisfied with the repair job but finally agreed that her insurance company should pay $1,700 for the re

> What is the difference between proposed and temporary regulations? What weight do they carry?

> A landlord requires tenants to pay 3 months’ rent in advance at the beginning of a lease. He informs the tenants that this is for the first month’s rent, the last month’s rent, and a refundable security deposit equal to one month’s rent.

> Jason owns a computer repair shop. Jason needs some repair work done on his company car, so he agrees to repair the computer at Bob’s Auto Repairs in exchange for fixing the car.

> Sherry just received a big promotion at Barcardo Corporation. Last year her salary was $100,000, but due to her promotion she expects to earn $180,000 this year. She expects that she will be able to save about $60,000 of her pay raise and is interested i

> Tropical Patios Corporation manufactures patio furniture in a factory with 24 employees. The office staff consists of 4 employees who handle personnel, accounting, and other office responsibilities. The sales staff includes 6 employees who travel extensi

> Makai Corporation has a potential deduction of up to $1,000 that it would like to claim on its current-year tax return. Its tax position meets the recognition threshold of more likely than not, but the deduction cannot be measured by a single amount. The

> Denise files her 2017 tax return on February 4, 2018. If there is no material understatement of income on her return and the return is properly signed and filed, when does the statute of limitations expire for Denise’s 2017 tax return?

> In the current year, Melbourne Corporation pays the $2,000 annual premium for a life insurance policy on its president, for which Melbourne Corporation is the beneficiary. Melbourne also pays $20,000 in annual premiums for group term life insurance for i

> Luis, a self-employed individual, flies from New York to Rome. He spends seven days in Rome on business and stays in Rome for an additional three days to vacation. Transportation costs incurred were $1,400; his hotel cost $200 per day for a total of $2,0

> John is a teacher at a local high school. During 2017, he travels three days per week to a school in the next county to work with gifted children in an after-school program that does not end until 6:30 p.m. He normally eats dinner before driving home. If

> Dan’s employer assigned him to the New York office for 18 months. During this 18-month assignment, Dan spent $18,000 for apartment rent and $8,500 for meals, because his family remained in St. Louis. At the end of the 18-month assignment, Dan returns to