During an IRS audit, Ms. H provided the revenue agent with a meticulous set of records substantiating every number on the return. The agent actually complimented her on the quality of her preparation. Nevertheless, Ms. H did make an error in her favor. When she received formal notification that she owed an additional $4,350 tax, she was dismayed that the IRS also billed her for $920 interest on the deficiency. She doesn’t understand why she must pay interest when she obviously made a good faith effort to comply with the tax law. Can you explain why?
> What is happiness research? Does this research indicate that money brings happiness?
> Discuss the planning steps in a simple capital needs analysis.
> Should a comedian and a government employee receive the same financial asset allocation if they have similar tolerances for risk? Why?
> Why is overhead cost considered a liability under TPM?
> What is total portfolio management?
> Identify the advantages of Monte Carlo simulation.
> Contrast simple and risk-adjusted capital needs analysis.
> Why can it be beneficial to raise or lower the withdrawal rate in response to market fluctuations?
> Brad and Barbara also attended the meeting. They said they were too young to start saving for retirement. Retirement seemed “hundreds of years” away and they wanted to have fun today. They would have plenty of time to save for retirement when they were i
> What are the advantages of the withdrawal rate method?
> What are the weaknesses of the withdrawal rate method?
> List the steps in the retirement needs analysis.
> When should the investment rate, the blended rate, and the inflation rate be used, respectively?
> How do an open-end and a closed-end mutual fund differ?
> Distinguish between a dividend discount model and a price-earnings model.
> Compare preferred shares with common shares and with debt.
> Distinguish between a bond’s coupon yield and a current yield.
> List and give examples of the three types of bond risks.
> List and explain four key steps in selecting a mutual fund.
> At the retirement planning meeting held recently, Richard and Monica were in agreement that they were well short of the money they needed for retirement at Richard’s age 65. Monica said she was thinking of handling investments herself. Richard said he wa
> What are the Sharpe ratio and the alpha coefficient used for? Contrast them.
> What is an exchange-traded fund?
> Explain the separate characteristics of three prominent types of load funds.
> List the maturity dates for classification purposes for bonds.
> Sally gave $200,000 to her daughter and said, “It’s yours as long as you agree to support me when I am older, if I should run out of my funds.” Is that a gift? Explain.
> Why are basis and a step-up in basis important?
> Shelly had just inherited money from her parents that she was considering placing in a joint account with her husband. She also was contemplating a legal separation from her husband. What advice would you give her? Why?
> Identify the alternative ways of titling and transferring assets and indicate how they differ.
> Detail the advantages and disadvantages of probate.
> Name the three major ways of receiving non–work-related funds from acquaintances and indicate how they should be valued.
> When I examined Richard and Monica’s insurance policies, I found the following: a. Medical coverage was adequate. b. Auto insurance was at the minimum level for the state of $50,000 to $100,000 per accident. c. Homeowners insurance was at a level of 50 p
> What are the strengths and weaknesses of a durable power of attorney?
> Morris didn’t understand why he should set up a bypass trust. He said that without a trust, upon his death the $6,000,000 in assets in his name could go to his wife free of estate tax. Why should he put restrictions on his wife by transferring the money
> Shane didn’t want to establish a bypass trust with her son as remainder beneficiary even though it would reduce the tax on her estate. She said her husband might need some of the money. Is that wise? Explain.
> Detail the advantages and disadvantages of setting up a trust.
> Samantha was affluent and gave $6,000 to each of 1,000 needy individuals. Someone told her that under the uniform estate and gift tax, she would have to pay a tax. Were they correct?
> Identify five reasons for having a will.
> What is clustering of expenses? Give an example of it.
> What is the difference between shifting income and transforming income?
> Which is the most appropriate tax bracket to use in making investment decisions: marginal or average tax bracket? Why?
> Why perform tax planning?
> In our meeting, it became apparent that Richard’s investment loss was not a solitary act. Richard was very indulgent and paid little attention to his health. He went out on shopping sprees that he and Monica couldn’t afford. He was overweight. He used al
> Richard called and said that he had compiled a list of assets and would send it. It came a few days later. His assets included a home worth $300,000, approximately $350,000 in securities, two cars worth $40,000 with loans of $15,000 against them, and oth
> Conrad Smith, a business executive, is an avid collector of vintage comic books. In February, he sold a 1938 Superman comic for $3,700 that he had purchased six years ago for $625. In December, Conrad sold a 1950 Donald Duck comic for $575 that he had pu
> Mr. and Mrs. Isaacs, ages 68 and 66, always claim the standard deduction on their joint return. They own a local restaurant, the Shoreline Grill, as a sole proprietorship. They are both graduates of State University and make regular donations to their al
> Mr. JR’s tax situation for the year is very complicated. He engaged in several high-dollar investment transactions involving unresolved tax issues. He has instructed his accountant to take the most aggressive position possible with respect to these trans
> Mr. Massey, who is in the 32 percent marginal tax bracket and itemizes deductions, recently inherited $30,000. He is considering three alternative uses for this windfall: He could buy shares in a mutual bond fund paying 6 percent interest a year. He coul
> The IRS recently assessed a $290,800 income tax deficiency on CMP Corporation. The deficiency is attributable to a complicated accounting issue involving CMP’s investment in a controlled foreign corporation. CMP plans to contest the deficiency in court.
> Ms. French is a successful attorney in the 37 percent marginal tax bracket. During the past several years, she provided legal services to her great-uncle, who is 78 years old and in failing health. Although the uncle offered to pay for her work, she refu
> Percy Wilson is a calendar year taxpayer. What is the unextended filing date of Percy Wilson’s 2018 federal income tax return if: a. Percy Wilson Inc. is a corporation? b. Mr. Percy Wilson is an individual? Answer a. The unextended due date of a 2018 c
> Marcy Tucker received the following items this year. Determine to what extent each item is included in her AGI. a. A $25,000 cash gift from her parents. b. A $500 cash award from the local Chamber of Commerce for her Winning entry in a contest to name a
> Zucker Inc. uses a fiscal year as the taxable year for filing its Form 1120. a. If Zucker’s fiscal year ends on March 31, what is the filing date and the extended filing date for Zucker’s Form 1120 for the fiscal year ending March 31, 2018? b. If Zucker’
> Mr. Clark Besson is undergoing extensive chemotherapy treatment for cancer. His oncologist recommended that he ingest marijuana to relieve the painful side effects. However, possession or use of marijuana is illegal in Mr. Besson’s state of residence. Th
> Using an electronic tax library that contains IRS publications, determine the purpose of Publication 334, Publication 504, and Publication 907.
> Last year, both the Burton family and the Award family incurred $8,000 unreimbursed medical expenses. Mr. and Mrs. Burton deducted $6,000 of their expenses, but Mr. and Mrs. Award were unable to deduct any of their expenses. How do you explain this appar
> Mrs. NM received a letter from the IRS asking her to submit written substantiation of a $1,500 charitable contribution deduction. Discuss the probable tax consequences to Mrs. NM if: a. She sends the IRS copies of her canceled check for $1,500 made out t
> If an individual purchases property insurance on business equipment, the premiums are deductible, but if that same individual purchases property insurance on his home, the premiums are nondeductible. Can you explain this inconsistent tax treatment?
> People frequently sell used appliances, old furniture and clothing, books, toys, and other personal goods through an online service such as Craigslist or eBay. Should these people recognize the cash proceeds from such sales as gross income?
> Which has the greater chance of audit: a Form 1040 with $200,000 AGI, all of which is salary income, or a Form 1040 with $200,000 AGI, all of which is net profit from a sole proprietorship?
> During a field examination of GNT’s income tax returns for 2015 and 2016, the revenue agent discovered that the treasurer had systematically omitted substantial income items and inflated deductions to minimize the corporation’s tax. The agent suspects th
> Mr. and Mrs. Kim own a principal residence and a vacation home. Each residence is subject to a mortgage that qualifies as acquisition debt, and both mortgages were incurred before December 15, 2017. This year, the mortgage holders provided the following
> Mr. and Mrs. Udall live in a home that Mrs. Udall inherited from her parents. This year, the Udalls took out a first mortgage secured by the home. Determine their itemized deduction for interest paid on the mortgage in each of the following cases: a. The
> Mr. and Mrs. Wickham did not apply for an extension of time to file their 2017 Form 1040. Because they were vacationing outside the United States, they neglected to file their Form 1040 until July 14, 2018. Compute the Wickhams’ late filing and late paym
> Mr. and Mrs. BL filed a joint tax return reporting $24,000 AGI. During the year, Mr. BL was extremely ill and was hospitalized for four months. Mrs. BL, desperate for funds to pay her husband’s medical bills, took a night job as a bartender. She earned a
> Both NK and CS are closely held corporations. NK’s tax returns for the last five years reflect average taxable income of $90 million. CS’s tax returns for the same period reflect average taxable income of $90,000. Discuss the reasons that the IRS might c
> Refer to the preceding problem. How would your answers change if the fire that damaged the Marcums’ roof was attributable to faulty electrical wiring in their attic? Data from Problem 24: Mr. and Mrs. Marcum live in Southern California in an area devas
> Mr. and Mrs. Marcum live in Southern California in an area devastated by wildfires that President Trump designated a federally declared disaster. Because of fire damage, the Marcums had to replace the roof of their home at a cost of $55,000. Their homeow
> Mr. NG is an enrolled agent in tax practice. Last year, the IRS imposed a $1,000 preparer penalty on him, and he immediately hired an attorney to contest the penalty. Mr. NG’s legal fee was $7,900. Was he acting irrationally by spending so much money to
> Two years ago, Lodi Inc.’s shareholders voted to dissolve the corporation. Pursuant to the dissolution, Lodi sold all its assets, paid off its outstanding debts, and distributed $789,000 remaining cash to its shareholders in complete liquidation of their
> Mr. and Mrs. Remy have the following allowable itemized deductions this year. Medical expenses……………………………………..$2,310 State and local taxes……………………………………4,019 Casualty loss………………………………………………8,000 Charitable contributions……………………………..2,500 Determine the
> Mrs. Leland’s profession is dentistry, but she has quite a reputation as a master gardener. Last year she won $990 in prize money from entering her roses in competitions and earned $800 in lecture fees from garden clubs. Should Mrs. Leland pay self-emplo
> Wealthy individuals can reduce their taxable estate by donating property to charity either during life or at death. Discuss the reasons why an inter vivo charitable donation is the preferable option for tax planning purposes.
> Mary Vale contributed a bronze statuette to a local museum. Mary received the statuette as a gift from her grandmother 35 years ago, and her tax basis was only $200. However, the statue’s appraised fair market value at date of contribution was $8,500. Co
> Mr. and Mrs. Pratt failed to apply for an extension of time to file their 2017 Form 1040 and didn’t mail the return to the IRS until May 29, 2018. Assuming the Pratts had no excuse for filing a delinquent return, compute their late-filing and late-paymen
> The revenue agent who audited Ms. Hsui’s Form 1040 discovered that she had claimed a $15,250 deduction that wasn’t allowed by the tax law. The improper deduction reduced Ms. Hsui’s tax by $5,033. Her total tax deficiency for the year under audit was $6,4
> Mrs. Stuart paid the following taxes. Local property tax on: 20 acres of land held for investment…………….$ 1,500 Condominium used as principal residence……….2,825 Sailboat used as vacation residence………………….1,975 Florida sales tax on consumer goods………………..3
> Mr. Curtis paid the following taxes. Federal income tax…………………………………………………………$50,789 Federal gift tax………………………………………………………………………285 Federal employer payroll tax for housekeeper…………………………..920 Indiana income tax………………………………………………………………5,710 Indiana sales
> Mr. Davis filed a delinquent tax return on July 27. The return reflected $3,700 total tax, $4,000 withholding, and a $300 refund due. Compute his late-filing penalty.
> A revenue agent determined that Ms. Owen understated her tax by $48,100 and concluded that $9,200 was caused by her inadequate record keeping while the remainder was caused by her misapplication of a complex rule of law. Compute the negligence penalty th
> Mr. Hall prepared and signed last year’s tax return on April 3. However, he forgot to mail the return until the morning of April 20. He enclosed his check for the $3,612 balance of tax due with the return. Compute his late-filing and late-payment penalty
> LZ Corporation uses a fiscal year ending September 30. The controller filed LZ’s Form 1120 for the year ending September 30, 2018, on October 23, 2018. a. What is the last day on which the IRS may assess additional tax for this fiscal year? b. How would
> Milt Payner purchased an automobile several years ago for $40,000 and has held it as a personal asset ever since. This year he sold the automobile. Compute Milt’s recognized gain or loss on the sale if: a. Milt’s amount realized on sale was $28,300. b. M
> Mrs. Small had the following items of financial support this year. Social Security benefits…………………………..$13,670 Pension from her former employer………..…..10,800 Cash gifts from her grandchildren…………..….12,000 Mrs. Small’s pension was paid by a qualified d
> Collin Products received notice of a $21,000 income tax deficiency plus $4,300 interest. The deficiency related to an incorrect method of accounting for business inventory. Compute the after-tax cost of the $4,300 interest payment assuming that: a. Colli
> Mr. and Mrs. Boyd Knevel use a fiscal year ending July 31 as the taxable year for filing their joint Form 1040. a. What is the last date on which the Knevels can apply for an automatic extension of time to file their return for fiscal year ending July 31
> Mr. Lynch had the following items of financial support this year. Compute Mr. Lynch’s AGI. Unemployment compensation $ 9,279 State welfare payments 4,060 Food stamps 1,948 Proceeds from a life insurance policy on his deceased wife
> Will and Sandra Emmet were divorced this year. As part of the property settlement, Sandra transferred marketable securities to Will. Her basis in the securities was $89,800, and their FMV was $168,000. Four months after the divorce, Will sold the securit
> Ann Moore receives a $1,000 monthly payment from her former husband Bill. How much of the $12,000 annual receipt is included in Ann’s AGI under each of the following assumptions? a. The monthly payment is alimony that Bill is required to pay under the Mo
> Four years ago, Lyle Mercer was injured in a railroad accident and sued the railroad for damages. The jury required the railroad to pay $600,000 compensation for his physical injuries, $150,000 for lost wages during his long recuperation, and $1,000,000
> Howard Wilson, a single individual, sold his principal residence in Cleveland eight months ago and excluded his entire $148,000 gain on the sale from gross income. He purchased and moved into a new home in a suburb of Chicago. Shortly thereafter, Howard’
> Betsy and Larry Lorch own and reside in an apartment in midtown Manhattan. They left the city to avoid the uproar surrounding New Year’s Eve and spent a long holiday with Larry’s parents in upstate New York. They sublet their apartment to a German couple
> Mr. and Mrs. Lukert own a sole proprietorship and have no other source of income. This year, they paid $11,674 Massachusetts income tax, all of which is attributable to their business profit. Can they deduct their state income tax as a business expense o
> Eighteen months ago, Barry Shelton won a $2 million Maryland state lottery jackpot and chose to receive it as $120,000 annual annuity for the rest of his life. This year his brothers persuaded him to sell the annuity to a financial institution for $1.79
> Contrast the general rule concerning the recognition of gross income from personal activities with the general rule concerning the deductibility of personal expenses and losses.
> Historically, about 1 percent of Form 1040s are audited. Why does a Form 1040 reflecting $31,000 AGI and a standard deduction have much less than a 1 percent chance, while a Form 1040 reflecting $912,800 AGI and $214,790 itemized deductions has a much gr
> Buddy Bushey is a student at a local community college. This year, he received a $20,000 living allowance from his parents and an $11,500 academic scholarship from a civic club. This scholarship paid $8,200 for Buddy’s tuition, $1,300 for his text books,
> Mrs. QE has decided to contest a $28,650 tax deficiency. She understands that she can initiate the litigation in district court or the Tax Court. Identify any reasons why she might prefer one trial court over the other.
> Discuss the similarities and differences in the structure of the gambling loss rule and the vacation home rule.
> Mr. JY, a commercial artist, engaged Mr. DE, a local attorney, to prepare his income tax return. Mr. JY provided the attorney with his check register, deposit slips, receipts, and pertinent financial documents and read through the completed return before
> Discuss the burden of proof as it relates to the penalties for: a. Negligence. b. Civil fraud. c. Criminal fraud.
