Determine the taxability of the damages received in each of the following situations: a. Helio Corporation sues Wrongo Corporation, charging that Wrongo made false statements about one of Helio's products. Helio claims that the statements injured its business reputation with its customers. The court awards Helio $2,000,000 in damages. b. Lien is injured when a chair on a ski lift she is riding on comes loose and crashes to the ground. Lien sues the ski resort and receives $12,000 in full payment of her medical expenses, $4,000 for pain and suffering, and $6,500 for income lost while she recovers from the accident. The company that manufactured the ski lift also pays Lien $50,000 in punitive damages. c. A major broadcasting company reports that Dr. Henry Mueller was engaged in Medicare fraud. The doctor is incensed and sues the company for libel. The court rules that the report was made with reckless disregard for the truth and awards Mueller $20,000 for the humiliation he suffered because of the allegation, $200,000 for loss of his business reputation, and $150,000 in punitive damages.
> Courtney is an employee of Freemont Company. An average of three times a week, she works out during her lunch hour at a health club provided by Freemont. Discuss the taxability of Freemont’s provision of the health club in the following situation. a. T
> What is an installment sale?
> Determine whether the taxpayer has received taxable income in each of the following situations. Explain why any amount(s) may be excluded: a. Jim is an employee of Fast Tax Prep, Inc. All employees of Fast Tax Prep are eligible for a 50% discount on th
> Don is the production manager for Corporate Manufacturing Facilities (CMF). CMF works three production shifts per day. Because Don is so integral to operations, the company requires him to live in housing that CMF owns so he can be available for any em
> How is the calculation of taxable income for an individual different from the calculation of a corporation's taxable income?
> Adam works during the summer as a fire watcher for the Oregon forest service. As such he spends 3 weeks in the woods in a forest service watchtower and then gets a week off. Because of the remoteness of the location, groceries are flown in by helicopte
> Tia is married and is employed by Carrera Auto Parts. In 2017, Carrera established high-deductible health insurance for all its employees. The plan has a $2,600 deductible for married taxpayers. Carrera also contributes 5% of each employee's salary to
> Hamid’s employer provides a high-deductible health plan ($1,300 deductible) and contributes $500 to each employee’s Health Savings Account. Hamid makes the maximum allowable contribution to his HSA. During the year, he spends $300 on qualified medical e
> Faldo, Inc., provides medical coverage to employees through a self-insured plan. Nick, the president of Faldo, receives $3,400 in medical expense reimbursements from the plan during the current year. Discuss the tax consequences to Nick under the follow
> Abe is an employee of Haddock, Inc. Haddock provides basic health and accident insurance to all its employees through a contract with Minor Accident Insurance Company. Because the Minor policy does not cover 100% of medical costs, Haddock provides all
> Horace is an employee of Ace Electric Co. Ace provides all employees with group term life insurance equal to twice their annual salary. How much gross income does Horace have under each of the following assumptions? a. Horace is 26 and earns $16,000 pe
> Bear Company provides all its employees with a $10,000 group term life insurance policy. Elk Company does not provide any life insurance but pays $10,000 to survivors of employees who die. Jackie, an employee of Bear Company, and her sister-in-law, Rose
> Under what circumstances can the following taxpayers defer recognition of prepaid income beyond the year of receipt? a. A cash basis taxpayer b. An accrual basis taxpayer
> Erwin works for Close Corporation for 24 years. Close has a qualified, noncontributory pension plan that pays employees with more than 5 years of service $100 per month per year of service when they reach age 65. Erwin turns 65 in February of this year
> Zoie has worked for Humple Manufacturing for 16 years. Humple has a pension plan that matches employee contributions by up to 4% of an employee’s salary. Zoie, age 60, is ready to retire. She has contributed $20,000 to the plan. Under Humple’s pensio
> Boris is an unmarried systems specialist with a public accounting firm. During all of 2017, he is on temporary assignment in London. He pays $21,000 in British income tax on his $100,000 salary. Boris knows little about taxes and seeks your advice on
> What does the 90-day letter represent, and what are the choices the taxpayer has after receiving one?
> Joan is a single individual who works for Big Petroleum, Inc. During all of 2017, she is stationed in West Africa. She pays West African taxes of $20,000 on her Big Petroleum salary of $92,000. Her taxable income without considering her salary from Big i
> Lucinda, a welder for Big Auto Inc. dies in an automobile accident on March 14 of this year. Big Auto has a company policy of paying $5,000 to the spouse of any employee who dies. In addition to the $5,000 payment, Big Auto pays Harvey, Lucinda's husba
> Armando, a manager for Petros Pizza Pies (PPP), dies in an accident on July 12. PPP pays his wife, Penelope, $600 in salary that had accrued before Armando died. Armando was covered by a $90,000 group term life insurance policy, which is also paid to P
> Determine whether the taxpayers in each of the following situations have realized taxable income: a. Alexander inherited a tract of land from his uncle who died during the current year. A friend of Alexander's who is a petroleum engineer told him he tho
> Fawn receives a $2,500 scholarship to State University. Discuss the taxability of the scholarship under each of the following assumptions: a. The scholarship is paid from a general scholarship fund and is awarded to students with high academic potential
> Earl is a student at Aggie Tech. He receives a $5,000 general scholarship for his outstanding grades in previous years. Earl is also a residence hall assistant, for which he receives a $1,000 tuition reduction and free room and board worth $6,000 per y
> How does the wherewithal-to-pay concept affect the tax treatment of prepaid income?
> Biko owns a snowmobile manufacturing business, and Miles owns a mountain bike manufacturing business. Because each business is seasonal, their manufacturing plants are idle during their respective off-seasons. Biko and Miles have decided to consolidate
> Allison dies during the current year. She is covered by a $1,000,000 life insurance policy payable to her husband Bob. Bob elects to receive the policy proceeds in 10 annual installments of $120,000. Write a letter to Bob explaining the tax consequenc
> Fatima inherits a rental property with a fair market value of $90,000 from her aunt on April 30. On May 15, the executor of the estate sends her a check for $7,000. A letter accompanying the check states that the $7,000 comes from the rent received on
> Herman inherits stock with a fair market value of $100,000 from his grandfather on March 1. On May 1, Herman sells half of the stock at a gain of $10,000 and invests the $60,000 proceeds in Jordan County school bonds. The bonds' annual interest rate is
> During the current year, Alexis gives her daughter Tabatha stocks worth $80,000 on the condition that she pays her son Rory the first $7,000 in dividends on the stock each year. Discuss the taxability of this arrangement in each of the following cases.
> What is included in the 30-day letter, and what options does the taxpayer have after receiving one?
> On May 1, Raisa received a $10,000, 9% bond of Altomba Corporation as a graduation present from her Aunt Lenia. The bond pays interest on June 30 and December 31. What are the tax effects of this transfer for Raisa and Lenia for the current year?
> A fire extensively damaged a small Alaska town where Intech Company had its primary plant. Intech decided to give $200 to each household that lost its residence. About 12% of the payments were made to Intech employees. Is the receipt of $200 by some I
> Throughout the textbook, it has been stated that tax relief can come in several forms. Assuming that the taxpayer in question is in a 28% marginal tax rate bracket and the time-value of money is 6%, determine the tax value of the following forms of relie
> Jonas owns a building that he leases to Dipper, Inc., for $5,000 per month. The owner of Dipper has been complaining about the condition of the restrooms and has proposed making improvements that will cost $24,000. Dipper's owner is willing to pay to h
> Paulsons Partnership owns a building that it has rented out to Corner Grocery Store for the last 10 years. Corner went out of business and returns the property to Paulsons. Corner had made improvements to the store costing $30,000 during the 10-year le
> Explain the hybrid method of accounting.
> Fran and Tom purchase a home in 2011 for $1,500,000. To finance the purchase, they borrow $1,450,000 from Buttars Mortgage Brokers. In 2012 they borrow an additional $100,000 from Buttars, secured by the residence, to add a game room. They become unemplo
> Helena has assets of $130,000 and liabilities of $160,000. One of her debts is for $120,000. Discuss the tax consequences of the reduction of this debt in each of the following circumstances: a. The debt was incurred by Helena for medical school expens
> Determine the amount of income that must be recognized in each discharge of indebtedness situation that follows. a. Marvin owes Central State Bank $80,000. The bank agrees to reduce the debt to $60,000. Prior to the debt reduction, Marvin’s assets total
> Vito is having financial difficulties. Among other debts, he owes More Bank $300,000. Rather than lend Vito more money to help him out, More Bank agrees to reduce his debt to $200,000. a. How much gross income must Vito recognize if his assets total $6
> Return to the facts of problem 58. Assume that Maysa bought $5,000 par value of Rondo Corporation bonds for $4,500. The bonds pay 8% interest annually. Three years later, the price of the bonds has increased to $6,200. Maysa can purchase municipal bo
> What are the three types of IRS examinations?
> Maysa is considering making an investment in municipal bonds yielding 4%. What would the yield on a taxable bond have to be to provide a higher after-tax return than the municipal bond if Maysa is in a 33% marginal tax rate bracket?
> Determine the amount of gross income Elbert must recognize in each of the following situations: a. In October, Elbert sells city of Norfolk bonds with a face value of $6,000 for $5,800. Elbert had purchased the bonds 2 years ago for $5,200, and had rece
> Horatio owns Utah general purpose bonds with a face value of $50,000 that he purchased last year for $52,000. During the current year, Horatio receives $2,400 in interest on the bonds. In December, Horatio sells the bonds for $48,000. What is the effe
> Determine Rona's gross income from the following items she receives during the current year: Interest on savings account…………………………………………$ 300 Dividends on Microsoft stock …………………………………………....200 Interest on Guam development bonds…………………………..2,000
> Detail any significant differences in the recognition of income using the cash method and using the accrual method of accounting.
> Determine the tax treatment of the payments received in each of the following cases: a. Anastasia is covered by her employer's medical insurance policy. During the current year, the policy reimburses her for $960 of the $1,200 in medical costs she incurr
> Bill was severely injured when he was hit by a car while jogging. He spent one month in the hospital and missed three months of work because of the injuries. Total medical costs were $60,000. Bill received the following payments as a result of the acc
> Janet, 43, is an employee of Primus University. Her annual salary is $44,000. Primus provides all employees with health and accident insurance (Janet's policy cost $1,800) and group term life insurance at twice their annual salary rounded up to the nea
> Becky, 45, is a senior vice president for South Publishing Co. During the current year, her salary is $125,000 and she receives a $25,000 bonus. South matches employee contributions to its qualified pension plan up to 10% of an employee's annual salary
> Dow, 42, is a manager for Winter Company. In addition to his $90,000 salary, he receives the following benefits from Winter during the current year: Winter pays all its employees' health and accident insurance. Premiums paid by Winter for Dow's health
> Briefly describe the types of programs used by the IRS to select a return for audit.
> Than's grandmother dies and leaves him jewelry worth $40,000. In addition, he is the beneficiary of a $100,000 life insurance policy that his grandmother had bought before she retired. Identify the tax issue(s) posed by the facts presented. Determine t
> Binh met Anika 10 years ago at a cocktail party. Anika was a wealthy investor with extensive holdings in the oil and gas industry. Binh was a real estate agent earning about $35,000 a year. Several months later, Binh proposed marriage and Anika accept
> Hersh inherits $50,000 from his grandfather. He receives the money on January 1 and immediately invests $25,000 in General Motors bonds that pay 8% annual interest and $25,000 in Lane County highway improvement bonds with a 6% annual interest rate. Ide
> What is an exclusion?
> Kermit receives a $1,000, 6% bond of General Foods, Inc., from his uncle Ed as a graduation present. The bond pays interest on June 30 and December 31. Kermit receives the bond on May 1. Identify the tax issue(s) posed by the facts presented. Determin
> A tornado extensively damaged the community in which Bodine Company had its primary manufacturing facilities. Bodine gives $1,000 to each household that suffered damage from the tornado to help residents while repairs are being made. Some (but not all)
> Calculate Carmin's adjusted gross income on her 2017 tax return. Then do one (or both) of the following, according to your professor's instructions: a. Include a brief explanation of how you determined each item that affected adjusted gross income and an
> Edna, 63, is a widow and works for Rhododendron Corporation. Her annual salary is $40,000. Rhododendron provides the following benefits to all employees: • Medical insurance—The cost of Edna’s policy is $1,800. She incurs $950 in valid medical expenses a
> This is the second part of a six-part problem that will allow you to prepare the 2016 tax return for Laurie and Lynn Norris. As with the previous parts, this part of the problem will ask you to prepare a portion of their tax return. You should complete
> Christina Ruiz provides you with the following information regarding her investment income. Interest received: Cavendar State Bank checking account…………..………..$ 43 Federal Employee’s Credit Union……………………………….881 City of Singapore bonds…………………………………………….9
> Reggie receives a 2-year scholarship to Big University. The scholarship stipulates that, to improve his teaching skills, he must spend his first year teaching at an affiliated school. He will be paid his scholarship by the affiliated school based on th
> What is the statute of limitations, and what role does it play in the filing of tax returns?
> Oliver and James are equal owners of OJ Company. During the current year, when OJ Company is insolvent by $100,000, a creditor reduces one of OJ's debts by $50,000. For the year, OJ incurs a $20,000 operating loss. Oliver and James are both solvent. Oliv
> In the U.S. tax system, employers can provide a wide array of nontaxable fringe benefits to employees. Excluding fringe benefits from taxation is one method of encouraging employers to provide such benefits to their employees. Australia takes a differe
> Why is it important that a conduit entity separate the reporting of its capital gains and losses from its reporting of other forms of income?
> The Small Business Job Protection Act of 1996 limited the exclusion for damages received to nonpunitive damages received on account of a personal physical injury or physical sickness. The new law specifically disqualifies emotional distress as a physica
> In April, a tornado damages the house owned by Delbert and Debbie. The damaged residence required extensive repairs, making it necessary for Delbert and Debbie to move into a motel and eat their meals in restaurants. During the repair period they incur
> Perry Corporation leases a building to Jimison Corporation for $10,000 per month. The terms of the lease provide that any improvements to the building will revert to Perry upon termination of the lease. During the current year, Jimison adds a wing to t
> Bud borrows $20,000 from a friend. Before he can repay any of the loan, the friend dies. His friend's will provides that any amounts owed to him are to be forgiven upon his death. Identify the tax issue(s) posed by the facts presented. Determine the
> Sonya purchases a house for $65,000. The seller had listed the house for sale at $80,000 but got into financial trouble and had to accept Sonya's $65,000 offer to avoid bankruptcy. Identify the tax issue(s) posed by the facts presented. Determine the p
> Taki was injured in an airplane crash. He sues the airline and receives $4,400 for his pain and suffering, $3,300 for lost wages while he recuperated from his injuries, and $7,000 in punitive damages. He also uses $1,000 from his Medical Savings Accoun
> Salina is an apartment manager and is paid $6,000 per year. The owner of the apartments offered her the option of a $300-per-month living allowance or the use of an apartment rent-free. Salina chose to live in the apartment, which normally rents for $4
> Ikleberry is a self-employed fisherman. He buys a health insurance policy by donating 1,000 salmon filets to the Nordisk Insurance Company’s annual Christmas party. During the year, Ikleberry receives $321 in reimbursements from the plan. Identify th
> If you were in the 28% marginal tax bracket and you could choose either a $1,000 tax credit or a $3,000 tax deduction, which would give you the most tax savings? Why?
> Based solely on the definitions in the chapter, is the Social Security tax a proportional, regressive, or progressive tax? Explain, and state how the tax might be viewed differently.
> Are all losses realized on the sale of capital assets deductible?
> Ariel has worked for Sander Corporation for 30 years. Sander has a pension plan in which it matches employee contributions by up to 5% of the employee's salary. Ariel, who is single, retires during the current year when she is 66 years old. Her pensio
> You are a CPA working for a local firm and have been assigned the 2017 tax return of Bobby Crosser. In going over the data that Bobby gave to the firm, you are surprised to see that he has reported no dividend income or gains from the sale of stock. Yo
> Are punitive damages taxable? Explain
> Why are life insurance proceeds excluded from the gross income of the beneficiary of the policy?
> How can gifts be used to lower the overall tax paid by a family?
> What is the difference between an exclusion of income and a deferral of income?
> What are the two reasons most commonly advanced for excluding items from income? Give examples of each and explain how they accomplish the purpose of the exclusion.
> Are all stock dividends received excluded from gross income?
> What is the purpose of excluding municipal bond interest from gross income?
> Discuss the difference in the tax treatment of payments received from an employer-provided health and accident insurance policy and a health and accident insurance policy purchased by the taxpayer.
> What is the purpose of the capital gain-and-loss netting procedure?
> How is a tax credit different from a tax deduction?
> Are payments for loss of income taxable? Explain.
> What is a personal physical injury for purposes of excluding damage payments received?
> Why are workers' compensation payments treated differently from unemployment compensation payments for tax purposes?
> What is the difference between a cafeteria plan and a flexible benefits (salary reduction) plan?
> What is the difference between a qualified employee discount and a bargain purchase by an employee?
> What is a Health savings account?
> What is the difference in the tax treatment of a medical insurance plan that is purchased from a third-party insurer and a self-insured medical reimbursement plan?
> Distinguish group term life insurance from whole life insurance.
> How do employees benefit from payments made into a qualified pension plan on their behalf?
