Corporation J sponsors a qualified profit-sharing plan for its employees. Three years ago, Ms. Purdy, a participant in the plan for more than 12 years, quit her job and left town without leaving a forwarding address. The corporation has tried to locate Ms. Purdy to send a Form W-2 and a final paycheck she failed to collect. So far, its efforts have been unsuccessful.
> Rochelle is a limited partner in Megawatt Partnership. For 2019, her schedule K-1 from the partnership reported the following share of partnership items. Ordinary income …………………………. $25,000 Section 1231 loss ………………………….. (3,000) Nondeductible expense ……
> Nunoz Inc., a calendar year taxpayer, incurred a net operating loss in 2018 that it carried back as a deduction against 2016 income. Nunoz’s treasurer filed a claim for a $712,600 refund of 2016 tax and expects to receive a check from the government any
> On April 13, Mr. Price applied for an automatic extension of time to file his Form 1040. He estimated that the balance of tax due was $3,800, which he paid with the extension request. He filed his return on June 20. The actual balance of tax due was $6,9
> On July 2, Mrs. Nation received a notice assessing a $10,861 tax deficiency. She was short of funds, so she did not pay her tax bill within 10 days as required by the notice. Instead, she waited until September 29 to mail a check for $10,861 to the IRS.
> On April 3, Mr. and Mrs. Rath traveled to Japan. They made the trip because their son, who lives in Tokyo, was injured in an accident and needed their care. After nursing their son back to health, they returned home on June 11. On June 17, Mrs. Rath mail
> Mr. Tahoma, who is a member of the Navajo tribe of Native Americans, developed severe arthritis this year. He paid $1,100 to a tribal medicine man who performed a series of traditional Navajo healing ceremonies called “sings.”
> Mrs. Newton, who is a self-employed author, paid $3,200 for a new computer system. She uses the system to write her books, and her two children use it for their schoolwork and video games.
> Mrs. Overton, age 60, won an age discrimination suit against her former employer. The court awarded her $100,000 in damages for mental anguish and $200,000 for the violation of her civil rights.
> The pilots of Skyway Airlines have been on strike for four months. Ms. Biggs received a $2,700 benefit from her union, the Airline Pilots Association International. The union funded the benefits for Skyway pilots through a solicitation from union members
> On a recent scuba dive, Mr. Underhill located a shipwreck and recovered a Spanish sword inlaid with precious stones. The sword’s appraised value is $11,500. Mr. Underhill mounted the sword over his fireplace.
> Ms. Lewis, a bartender and aspiring actress, won a statewide beauty pageant and was awarded a $15,000 cash scholarship to further her education and career goals. She used the money to pay for private acting lessons.
> On January 10, 2017, a fire destroyed a warehouse owned by NP Company. NP’s adjusted basis in the warehouse was $530,000. On March 12, 2017, NP received a $650,000 reimbursement from its insurance company. In each of the following cases, determine NP’s r
> Mr. Tinsler was a contestant on a game show and won a vacuum cleaner with a retail price of $365. Three months later, he sold the unused appliance in a garage sale for $275.
> Mr. Saul, a real estate broker, just negotiated the sale of a home for a wealthy client. Two days after the sale closed, he received a beautiful leather briefcase from the client with a card reading: “In grateful appreciation of your efforts over the pas
> Mr. and Mrs. Ayala purchased their home one year ago. This year, a local government attempted to seize the home because the former residents had failed to pay their property taxes for 12 years. Mr. and Mrs. Ayala paid $1,700 to an attorney who resolved t
> Ms. Seagram paid $155,000 for a house that she occupied as her principal residence until February 1, when she moved out and converted the house to rental property. The appraised FMV of the house was $140,000. She leased the house to tenants who purchased
> For the past 10 years, Mr. Bianco lived on his sailboat for five months of the year and spent the other seven months living in his daughter’s home. This year, he realized a $35,200 gain on sale of the boat and moved into his own apartment.
> Mr. Dix borrowed $600,000 to purchase 62 acres of undeveloped land and secured the debt with the land. He converted a three-room log cabin on the land to his principal residence. This year, he paid $39,910 interest on the mortgage.
> Mr. and Mrs. Fitch bought $500 worth of Girl Scout cookies from their godchild. Because they don’t eat sweets, they gave away every box to various friends and family members.
> Mr. Ruskin, a CPA who charges $150 per hour for his professional services, keeps the financial records for a local charity. Although he spends at least 10 hours each month at this task, he doesn’t charge the charity a fee for his services.
> Mr. Sheraton suffers from severe arthritis. His physician advised him to swim for at least one hour every day in a heated pool. Because such a facility is not conveniently located in his area, he paid $25,000 to build a heated lap pool in his backyard.
> A local radio station offers a $5,000 reward for information leading to the arrest of vandals and other petty criminals. Mr. Jenks received the reward for identifying three people who spray-painted graffiti on a public building.
> On June 2, 2019, a tornado destroyed the building in which FF operated a fast-food franchise. FF’s adjusted basis in the building was $214,700. In each of the following cases, determine FF’s recognized gain or loss on this property disposition and FF’s b
> Ms. Nassam has $60,000 suspended passive activity losses from her interest in the EZ Limited Partnership. In December, she sold this interest to N Inc., a regular corporation in which she is the sole shareholder.
> This year, Ms. Tan had a $29,000 capital loss carryforward and an $8,200 suspended passive activity loss carryforward. She died on September 12 and didn’t recognize any capital gain or passive activity income during the year.
> Mr. Morales was a 25 percent partner in MNOP Partnership, which operated a gift and souvenir shop. He materially participated in the partnership business. Several years ago, Mr. Morales loaned $10,000 to MNOP in return for a written interest-bearing note
> Two years ago, Ms. Eager loaned $3,500 to her 20-year-old daughter, who used the loan proceeds to buy a used car. This year, the daughter informed her mother that she could not repay the debt.
> Three years ago, Mrs. Best purchased 1,000 shares of NN stock from an page 16-43 unrelated party for $12 per share. After her purchase, the value of the shares steadily declined. Two weeks ago, an unrelated party offered to buy the shares for 30 cents pe
> Mr. and Mrs. Gamble paid $53,000 for a corporate bond with a $50,000 stated redemption value. They paid the $3,000 premium because the bond’s annual interest rate is higher than the market interest rate.
> In 1993, Mr. Lloyd paid $18,000 for a newly issued BN bond with a $30,000 stated redemption value. He has recognized $6,000 of the original issue discount (OID) as ordinary interest income. This year, BN went bankrupt and informed Mr. Lloyd that his bond
> At the beginning of the year, Ms. Alston owned 2,900 shares of SBS stock with a basis of $32 per share. SBS paid a 50 percent stock dividend, and Ms. Alston received 1,450 additional SBS shares. Before this dividend, the market price per share was $90. A
> Mrs. Allen died on June 1. She and her surviving husband were co-owners of real property with a $200,000 adjusted basis and a $1.6 million FMV. Mr. Allen inherited his wife’s half of the property.
> Mr. Durst died on March 8. His taxable estate includes a traditional IRA with a $140,000 balance. Mr. Durst’s contributions to this IRA were fully deductible. His son is the beneficiary of the IRA.
> Cramer Corporation, a calendar year, accrual basis corporation, reported $1 million of net income after tax on its 2019 financial statements prepared in accordance with GAAP. The corporation’s books and records reveal the following information: * Cramer’
> Mr. Oakem, a 66-year-old divorced individual, has two children with his former wife. He recently married a 45-year-old woman with no property of her own. Therefore, Mr. Oakem plans to change his will to provide that when he dies, his fortune will be plac
> Mr. Pugh has a $7,900 adjusted basis in his limited interest in PKO Partnership. He also has $22,000 suspended passive activity losses from PKO. Mr. Pugh recently sent a letter to PKO’s corporate general partner formally abandoning his equity in the part
> Mr. Clem invests in Series EE savings bonds. He projects that his sole proprietorship will generate a sizeable loss, and he wants to accelerate income from other sources to offset it. He could elect to recognize $28,000 accrued interest on the savings bo
> Mr. and Mrs. Schill are CPAs. Mr. Schill is an employee of a national accounting firm, while Mrs. Schill operates her own professional practice. Each year, the couple pays approximately $1,300 to subscribe to professional publications and research servic
> Six years ago, Ms. Prevost paid $20 per share for 1,000 shares of her employer’s stock. This stock is now worth $58 per share. Ms. Prevost wants to exercise a stock option to buy 1,000 more shares at a strike price of $29 per share. Because she doesn’t h
> GHK recently granted a stock option to an employee to purchase 20,000 shares of stock for $11 per share. On the date of grant, GHK stock was selling for $12 on the NYSE.
> Mr. Granger was employed by a closely held corporation that issued him a year-end bonus of 50 shares of stock worth $200 per share. Mr. Granger’s ownership of the stock was nontransferable and restricted. If he resigned from his job within four years of
> Ms. Larrick is employed at VD’s corporate headquarters and often works late hours. The headquarters building is located in a high-crime urban area. As a result, corporate policy is that any employee leaving the premises after 7:00 p.m. must take a cab ho
> Mr. Donde has the full-time use of an automobile owned and maintained by his employer. This year, Mr. Donde drove this company car 48,000 miles on business and 22,000 for personal reasons. He is not required to page 15-42 report this information to his e
> Mr. Keach is a professor at a private university. The university waives the tuition for a faculty member’s child who meets the entrance requirements. Mr. Keach’s two children are enrolled in degree programs at the university. If not for the waiver, Mr. K
> Herelt Inc., a calendar year taxpayer, purchased equipment for $383,600 and placed it in service on April 1, 2019. The equipment was seven-year recovery property, and Herelt used the half-year convention to compute MACRS depreciation. a. Compute Herelt’s
> Ms. Bourne is an executive with GG Inc., an international business operation. She flies more than 150,000 business miles each year and accumulates considerable frequent-flier points from the airlines. GG allows its employees to use their frequent-flier p
> Mr. Norby, age 53, owns a traditional IRA with a $215,000 current balance. Mr. Norby recently divorced his wife and transferred this IRA to her as part of the property settlement.
> Mr. and Mrs. Vishnu are the sole shareholders of VC Enterprises. They are also employed by VC and participate in its qualified pension plan. VC is experiencing cash flow difficulties. To ease the strain, Mr. and Mrs. Vishnu voluntarily forfeited their ve
> Mr. McNeil, age 50, is a self-employed writer who published 11 novels in the past 20 years. Each year, he makes the maximum contribution to his Keogh plan. This year, he borrowed $200,000 from the plan to finance the construction of a new home. Under the
> This year, TT Corporation agreed to defer $100,000 compensation owed to Ms. Blass, the director of research. TT funded its obligation by transferring $100,000 cash to a trust administered by a local bank. TT can’t reclaim these funds. However, the trust
> Ms. Jorgen recently moved from Boston to Pittsburgh to take a job with OP Inc. She sold her home in Boston, and OP paid the $14,500 realtor’s commission on the sale.
> Mr. Trudel and Mr. Varga founded TV Corporation six years ago and have devoted every waking hour to the corporate business. During the first four years, neither shareholder received a salary. During the last two years, each shareholder received a $400,00
> Mr. Severson, a self-employed attorney, has sole custody of his nineyear- old daughter. This year she spent eight weeks during the summer at a recreational camp. The total cost was $3,800.
> Mr. and Mrs. Wynne have full-time jobs. They employ Mrs. Wynne’s 18-year-old sister as an after-school babysitter for their 10-year-old son.
> Warren Company is a calendar year, cash basis firm. On December 6, 2019, Warren paid $7,200 cash to a landscape service business that maintains the lawns and gardens around Warren’s headquarters. How much of this expenditure can Warren deduct in 2019 ass
> Mr. Pitcock’s AGI includes an $8,700 dividend paid by a German corporation and $11,600 interest paid by a Canadian bank. He paid $3,000 foreign income tax this year.
> Mr. Glenn, age 90, lives in a nursing home. He has no gross income and is financially dependent on his four adult children, each of whom pays 25 percent of the cost of the home.
> Mr. and Mrs. Bosco have an 11-year-old child. The couple is divorced, and Mrs. Bosco has sole custody of the child. However, Mr. Bosco pays his former wife $1,200 child support each month.
> Mr. Tilton is a 20-year-old college student. This year he lived on campus for nine months and in his parents’ home during the summer. His parents paid for all Mr. Tilton’s living expenses, but a scholarship paid for his $22,000 college tuition.
> Until March of this year, Mr. George took care of his invalid mother in his own home and provided 100 percent of her financial support. In March, she became eligible for Medicaid, and Mr. George moved her into a state-provided room in a nursing home.
> Mr. and Mrs. Johnson were married in 2001. This year they traveled to Reno, Nevada, immediately after Christmas and obtained a divorce on December 29. They spent two weeks vacationing in California, returned to their home in Texas on January 13, and rema
> In November, Mr. Kurk discovered that his combined income tax withholding and estimated tax payments would be less than his prior year tax and, therefore, would not be a safe-harbor estimate. He immediately requested that his employer withhold enough tax
> Mr. and Mrs. Marceleno own a sole proprietorship that generates approximately $60,000 annual net profit. This business is the couple’s only source of income. In April, June, and September, they paid their estimated tax payments. In December, they won $25
> During the first eight months of the year, Ms. Layne was self-employed and earned $63,200 net income. In September, she accepted a job with MW Company and earned $75,000 salary through the end of the year.
> Mr. Leonard died on April 16. Mr. and Mrs. Leonard had been married for 11 years and had always filed a joint return. Mrs. Leonard remarried on December 21.
> LSG Company is a calendar year, cash basis taxpayer. On November 1, 2019, LSG paid $9,450 cash to the janitorial service firm that cleans LSG’s administrative offices and retail stores. How much of this expenditure can LSG deduct in 2019 assuming that: a
> Hastings Corporation has a foreign subsidiary conducting a manufacturing business in Country Z, which has a 15 percent corporate income tax. The IRS recently challenged the transfer price at which Hastings performs managerial services for the subsidiary
> Lincoln manufactures paper products in the United States and sells the products internationally. Because most of its foreign sales are in hightax jurisdictions, Lincoln has excess foreign credits from its paper business. This year, Lincoln earned $8 mill
> Funk Corporation conducts business in a foreign jurisdiction that imposes a 1 percent tax on gross receipts from sales within the jurisdiction. This year, Funk paid $750,000 gross receipts tax to the jurisdiction.
> Homely Corporation operates a fleet of oceangoing cargo vessels. During the year, one Homely vessel was docked at its home port in New Orleans for 55 days, was on the high seas for 120 days, and was docked at various foreign ports of call for the remaini
> Benton is a consulting firm with its headquarters in New York City. This year, it entered into a consulting contract with a multinational corporation. Mrs. Kalle, an employee, spent 33 days working at Benton headquarters, 28 days in London, 50 days in Pa
> The United States has a tax treaty with the United Kingdom that provides certain tax benefits to UK corporations conducting business in the United States. The United States does not have an income tax treaty with Chile. Silas Company, a Chilean firm that
> Durbin Corporation is incorporated and has its commercial domicile in State N. This year, Durbin sold its manufactured products to customers in State N (61 percent of sales), State O (28 percent of sales), and State P (11 percent of sales). Durbin has ne
> ABC operates a meat and poultry business. The corporation distributes its products in six states and pays income tax to each based on the meat and poultry income apportionable to each. Last year, ABC invested in a motion picture. The picture was a commer
> For many years, Bertrand Inc. owned a foreign subsidiary with over $8 million accumulated foreign source income (on which Bertrand has never paid U.S. tax). Immediately prior to December 31, 2017, Bertrand Inc. sold its investment in the foreign subsidia
> Williams Inc. is a U.S. corporation that manufacturers toys in a factory located near Milwaukee, Wisconsin. Williams sells the toys to its foreign subsidiary, which is incorporated in Carnema, a Caribbean country with no corporate income tax. Williams ac
> In 2019, Wilma Way’s sole proprietorship, WW Bookstore, generated $120,000 net profit. In addition, Wilma recognized a $17,000 gain on the sale of business furniture and shelving, all of which was recaptured as ordinary income. The business checking acco
> State E wants to encourage the development of a local wine industry. Consequently, it decreased its excise tax rate on retail sales of locally produced wines to 3 percent. The state’s excise tax on wines produced out-of-state but sold in-state is 10 perc
> Mr. and Mrs. Crandall own 100 percent of the stock in CR Inc., which recently hired the couple’s nephew at a $30,000 annual salary. The nephew, age 20, has been in several scrapes with the law and needs financial help, and the Crandall family agreed that
> Taha is closely held by eight family members. Taha purchased investment land 12 years ago for $100,000. The land was recently appraised at an FMV of $3 million. A buyer has offered to pay cash for the land. Because the shareholders need the cash, they pl
> Last year, Mrs. Kahn and Mrs. Toms each contributed the assets of their respective sole proprietorships to a new corporation. The shareholders believed that by combining their businesses, they could increase profitability. They were encouraged to do so b
> LSN, a calendar year S corporation, has 13 shareholders. Since its incorporation, LSN has retained more than $800,000 income to reinvest in its business. Because LSN is a passthrough entity, the shareholders have paid tax on this undistributed income and
> Eight years ago, Mr. and Mrs. Lauffer created a family partnership with their son, the son’s wife, their daughter, and the daughter’s husband. Each of these six individuals owns an equal interest in the partnership. This year, the son and his wife decide
> REW Inc. is closely held by six members of the REW family. The corporation owns two vans that employees use for various business transportation purposes. However, for at least eight weeks during each page 12-24 year, the shareholders use the vans to take
> Mr. and Mrs. Braun own 100 percent of the stock of BB Inc., which operates a temporary employment business. Late last year, Mr. Braun was short of cash in his personal checking account. Consequently, he paid several personal bills by writing checks on th
> Mr. Jackson owns a 40 percent interest in newly formed JKL Partnership. The partners organized their business as a passthrough entity so that the start-up loss would generate an immediate tax savings. Mr. Jackson, however, had a substantial loss from ano
> WQ Corporation, a closely held family business, has not paid a dividend for the last seven years. Each year, the minutes of the board of directors’ December meeting state that WQ must accumulate after-tax income to pay for a new manufacturing facility. U
> Brillo Company uses the calendar year and the cash method of accounting. On December 29, 2019, Brillo made the following cash payments. To what extent can Brillo deduct the payment in 2019? a. $50,000 for a two-year office lease beginning on February 1,
> Mr. and Mrs. Keck are in the highest marginal tax bracket. Their son, a first-year college student, earns minimal income from his summer job, and his marginal tax rate is 10 percent. Mr. and Mrs. Keck are considering making their son an equal owner in a
> Bandera Corporation has not paid a dividend for six years. This year, the board of directors decides to declare a dividend. It hires a consultant to update the shareholder records so that the dividend can be distributed to the proper people. The consulta
> TK Enterprises, an accrual basis corporation, needs to raise capital. One idea is for TK to sell bonds to the public for $625 each. These bonds would have no stated rate of interest but would be redeemable from TK in five years for a redemption price of
> Wiggins Corporation is a calendar year taxpayer. For the past nine years, its taxable income has been stable, averaging $2 million per year. Through November of this year, its taxable income was $1.81 million. In April, June, and September, Wiggins made
> Talon Corporation has accumulated minimum tax credits from prior years. However, it currently projects that it will operate at a loss for 2018 and 2019, owing no regular tax liability for these years.
> Ferris Corporation is looking to relocate its corporate headquarters to a small, historic town in the northeastern United States. Representatives of the town government have suggested several historic buildings in the town center as options that might me
> Twenty years ago, Chemco Corporation developed, manufactured, and marketed Kepone, a chemical pesticide. As a result of manufacturing practices that violated state environmental standards, harmful levels of Kepone were discharged into the soil and ground
> M&M is a publicly held corporation, and its stock trades on Nasdaq. This year, M&M contributed 15,000 shares of its newly issued common stock to a local charity. At the date of contribution, the stock was selling at $7.12 per share.
> Greentown Foundation is a nonprofit corporation exempt from federal income tax. Its purpose is to solicit volunteers to plant and tend public gardens and greenbelts located in inner cities. The board of directors is considering publishing a gardener’s ne
> Mr. Yang just sold his entire 20 percent interest in DK Partnership to an unrelated purchaser for $7,500. Mr. Yang’s adjusted basis in the interest was zero, and he had a $12,000 carryforward of DK loss.
> Refer to the facts in the preceding problem. Assume that in the year 2020, the Social Security base amount increases to $135,000. Compute BDF’s 2020 employer payroll tax with respect to Mr. Williams assuming that: a. His annual compensation is $60,000.
> Using the 2019 corporate tax rate: a. What are the tax liability, the marginal tax rate, and the average tax rate for a corporation with $248,300 taxable income? b. What are the tax liability, the marginal tax rate, and the average tax rate for a corpora
