Ernie's Farm and Garden Implement Store sells, repairs, and services farm and garden equipment. In 2016, the state attorney general began to investigate customers' complaints that Ernie's was adding a delivery and handling fee to each product---fees that are illegal under state law. In 2017, Ernie's entered into a consent judgment under which it was to make restitution of every delivery and handling fee charged to customers after April 1, 2015. The judgment also required Ernie's to give the attorney general's office a list of every customer entitled to restitution and to issue a coupon in the name of each customer. The coupons offered each customer the option of a $50 discount on the purchase of any part or service or $90 toward the purchase of any new or used equipment. If not satisfied with the coupon offer, the customer could redeem the coupon for $40 in cash. Ernie's mailed out 1,860 coupons in April and May 2017. As of December 31, 2017, 835 coupons had been redeemed as follows: 405 for cash refunds, 390 for $50 discounts for parts and services, and 40 for $90 discounts on equipment purchases. The controller of Ernie's is not certain that the company can deduct the amounts it gave customers for refunds or discounts in 2017 and has asked your firm for advice. Your supervisor has assigned you to determine Ernie's 2017 deduction. Write a memorandum to your supervisor explaining Ernie's 2017 deduction for the coupons.
> Avalon Inc., buys equipment costing $150,000 in 2014 and sells it in 2017. Avalon deducts $94,000 in depreciation on the equipment before the sale. What is the character of the gain or loss on the sale of the equipment if the selling price is a. $90,00
> Why is a distinction made between long-term capital gain (loss) property and short-term capital gain (loss) property?
> The Gladys Corporation buys equipment (7-year MACRS property) costing $658,000 on May 12, 2017. In 2020, new and improved models of the equipment make it obsolete, and Gladys sells the old equipment for $34,000 on December 27, 2020. a. What is the cha
> Rhinelander Corporation has the following net Section 1231 gains and losses for 2012 through 2016: 2012……………………………………$ 8,000 2013………………………………………(6,000) 2014……………………………………..(13,000) 2015…………………………………………11,000 2016………………………………………..15,000 a. What is th
> Dawn started her own rock band on January 2, 2015. She acquired all her equipment on January 2, 2015, and did not dispose of any of it before 2017. On April 15, 2017, the band’s amplifier, speakers, and other electronic equipment, are stolen after a co
> In 2017, Sondra Corporation recognizes $18,000 in Section 1231 gains and $10,000 in Section 1231 losses. In 2012, Sondra reported $12,000 in Section 1231 losses and no Section 1231 gains. No other Section 1231 gains or losses were recognized by Sondra
> Refer to the facts in problem 58. In the following year, FFF has these gains and losses: Casualty gain on building………………$ 5,000 Section 1231 gains…………………………$ 3,000 Section 1231 losses………………………..$ 17,000 What is the effect of these transactions on
> Fred's Foam Foundations (FFF) is a sole proprietorship that Fred started in 2012. Before the current year, FFF had not disposed of any property it owned. During the current year, FFF has the following gains and losses: Casualty Loss on foam truck …………
> Opal's neighbor, Jillian, persuades her to invest in Schaake Corporation, a new venture, on March 4, 2016. Opal pays $15,000 for 3,000 shares of common stock. On February 6, 2017, Schaake Corporation declares bankruptcy and closes its doors forever. O
> Dagwood has come to you with a pressing problem. In November 2006, he purchased an office building that he has rented out to various businesses. On May 2 of the current year, a fire swept through the building, totally destroying it. To make matters wo
> Rachel lives in a downtown apartment in Gotham City. She has 3 years remaining on her apartment lease when her landlord, Blaylock Company, approaches her about moving out. Blaylock wants to demolish the apartment building and build an office tower in i
> Ansel sells 400 shares of Sharpe, Inc., common stock on October 12, 2017 for $11,800 and pays $600 in commissions on the sale. He acquired the stock for $18,400 plus $800 in commissions on July 8, 2016. Ansel owns the following securities in December
> Marjorie is a software systems engineer for Hacker Corporation. In November 2014, she inherited two parcels of land in Brower Township from her grandfather. Her grandfather's estate valued the parcels, which are adjacent to each other and total 25 acre
> Dale’s son is a senior in high school and is planning to go away to college next year. Dale would like to buy a house near the campus and rent it to his son. He comes to you for advice on the tax ramifications of this arrangement. What advice can you
> Fingeland's Forest Choppers is a corporation engaged in the production of timber and lumber. Two years ago, Fingeland's reforested a clear-cut area by planting nursery-grown seedlings. Last year, a severe drought kills 80% of the seedlings, forcing Fin
> Kimberly is a developer of apartment complexes. Two years ago, she formed Deckside Apartments, a partnership, and initiates development of the Deckside Apartments complex. The Staten Investment Fund agrees to the development at an annual interest rate o
> Sterling is a college professor with an extensive stock portfolio. Last year, he met Wheeler, a stockbroker with the firm of Ransom, LaForge, and Adkins. To get Sterling's business, Wheeler offered to use his investment expertise on Sterling's behalf,
> Nina was getting ready to go to a party and couldn't find her bracelet. She remembered wearing it last weekend and taking it off at a bar to show to friends. Her memory of the remainder of that evening is foggy, but she hadn’t seen or worn the bracelet
> Mae and Vernon are equal owners of Denson, Inc., an S corporation. Denson owns 5,000 shares of stock in Cowboy Country. Denson paid $300,000 for the Cowboy Country stock, which is qualified small business stock. During the current year, Denson sells 4
> Lorissa owes Waterbury State Bank $200,000. During the current year, she is unable to make the required payments on the loan and negotiates the following terms to extinguish the debt. Lorissa transfers to Waterbury ownership of investment property with
> After Maria and Tatsuo are divorced, their 2 minor children continue to live with Maria. Pursuant to their divorce decree, Tatsuo pays Maria $1,000 per month in child support and $1,800 per month in alimony. The divorce decree specifies that in the eve
> Hawaii law requires the state to deposit a part of its annual pineapple income in the Hawaiian Long-lasting Fund. All income from the fund is deposited in the state's general fund. The fund's general manager is permitted to use the funds to buy only cert
> Neila sells 500 shares of Bolero Corporation stock for $10,500 and pays $500 in sales commissions on September 23 of the current year. She acquired the stock for $4,700 plus $300 in commissions five years ago. Neila owns the following securities in Dec
> Adrian is a salesperson who represents several wholesale companies. On January 2, 2017, she receives by mail a commission check from Ace Distributors in the amount of $10,000 and dated December 30, 2016. Adrian is concerned about the year in which the
> Gary is an internal auditor for Bodine Information Systems (BIF). In 2014, BIF opened a large production plant in Las Vegas, Nevada. Subsequently, Gary has had to spend several months each year at the Las Vegas facility. Gary has always fancied himsel
> Rick and Maria had been married for 20 years before their divorce in the current year. At that time, they made the usual property settlement: Maria got the house, the van and the cat; Rick got the mortgage, the Ford, and the dog. Other property was div
> Sam is an executive with a U.S. corporation. During the current year, he is working in another country. His employer provides a corporation-owned residence for Sam which is located three miles from his office. The residence is far above the standard h
> Henry invests $50,000 in an entity called Forward Investments on January 20, 2016. Under the terms of the investment agreement, the $50,000 is considered a loan that Forward will use to invest in derivative contracts. Henry is to receive 2% of the amou
> Omega Investments, Inc. was formed in 1999 by 10 unrelated individual investors. The corporation operates a chain of electronics stores. The corporation suffered losses in its early years but has become profitable in recent years. The corporation elect
> The Miller family has owned several large apartment buildings for many years. They organized Miller Properties, Inc., to own and manage the properties. The corporation is an accrual basis taxpayer and uses a calendar year. All shares of Miller Propert
> Evelyn is the president and sole shareholder of Ephron Corporation. Ephron is an accrual basis taxpayer and uses a calendar year. Evelyn is a cash basis, calendar year taxpayer. During the second half of 2016, Ephron recorded several million dollars of
> Fernando has been an attorney in the legal department of Mega Manufacturing, Inc., for the past 15 years. As part of Mega’s restructuring plan, he will lose his job as an employee of Mega, but he will continue contracting with Mega to work on specific e
> George and June are active volunteers in their local church. George serves as an usher one Sunday morning a month. June sings in the church choir every Sunday morning and attends choir practice each Wednesday evening. Based on the distance from their
> Marnie buys 500 shares of qualified small business stock in H.R. Pizza, Inc., on September 10, 2008 for $20,000. She sells the 500 shares for $120,000 on October 2, 2017. Marnie's other capital asset transactions consist of a $7,000 short-term capital
> What is the purpose of the capital gain-and-loss netting procedure?
> Seaweed Salvagers is a corporation engaged in producing foodstuffs from seaweed. Seaweed's primary salvaging plant is located in California. Because the salvaging technology hasn't changed through the years, Seaweed's primary salvaging equipment was pu
> Jefferson is a grade school teacher whose annual income from teaching is $30,000. He has always enjoyed bowling and his local pro urged him to turn professional. He subsequently begins working for the pro as an unpaid assistant and enters an apprentice
> Mason owns Brickman, Inc., which specializes in laying brick patios, terraces, and walkways. Mason bids on a contract with State University to build several large terraces as well as the walkways adjoining the terraces. Although he is the low bidder, M
> Harvey is employed by the U.S. Customs Service. Early in the year he accepts a position in the London office. In addition to a raise in his pay grade, the terms of the London assignment let Harvey collect a monthly living quarters allowance (LQA) for r
> Francine is a self-employed marketing consultant based in Fort Worth, Texas. During the year, she travels to various cities in the United States to meet prospective clients and make presentations at seminars. Francine can substantially reduce her airfa
> Larry is a professional gambler, specializing in dog racing. He spends 50 to 60 hours per week studying racing forms and placing bets at the track. During the current year Larry has winnings of $240,000 on $380,000 of bets placed. He has no other busi
> Jon purchases a farm for $2,200,000. The previous owners planted parallel rows of bushes and trees on the land when they acquired it to block the wind from the part of the farm that was planted with crops. The trees and bushes have never produced salabl
> Rosemary attends classes provided by her church. She makes payments to the church, which are required to attend classes. She plans to deduct the payments as charitable contributions to her church. Can Rosemary deduct the payments as charitable contrib
> Warren is chief executive of a major corporation and is very concerned about his premature balding. He contacts a hair transplant specialist and wants to have surgery performed this year. Write a memo advising Warren whether the hair transplant surgery
> Grace, the minister of the local United Methodist Church, has some tax questions regarding her employment status. This is her first year as a United Methodist minister after having served as a Baptist preacher for twenty years. She wonders if the conve
> Thuy buys a rental house in 2010 for $75,000. In 2017, she sells it for $86,000. Thuy properly deducted $22,000 in depreciation on the house before its sale. a. What is the amount and character of the gain on the sale? b. Thuy also sells the following
> The Kona Rural Electric Coop (KREC) is an accrual basis public utility. All new customers are required to pay a deposit equal to 3 times the customer's estimated monthly bill or $100, whichever is greater. The purpose of the deposit is to ensure that ti
> Mr. and Mrs. Lucky have been married for 25 years. Last year, they won $200,000 at a casino. They knew that this would put them in the highest tax bracket for the year. To avoid this, they went to Mexico on December 28 and obtained a divorce. They co
> Lydia and Andre are divorcing this year. Because they are hotly contesting the terms of the settlement, they will not file a joint return for the current year. Lydia receives a Form 1099-INT from Andre's accountant and a letter stating that Lydia shoul
> Tomiko owns the copyright to several classic Motown songs. In 2015, he became aware that Tinseltown Records was selling several of his songs without his permission. He sues Tinseltown seeking $1,000,000 in damages. In 2017, the court awards Tomiko $50
> Al is in the state penitentiary after being convicted of a series of crimes. He still corresponds with his girlfriend to ask for money and this year she has sent him a total of $1,200. Al’s only other income is the $1,000 he has been paid for making li
> Name the other types of pronouncements issued by the IRS, and briefly describe their content.
> What impact would an IRS announcement of nonacquiescence to a court decision have on a taxpayer in a similar situation?
> What does it mean when the IRS issues an acquiescence or nonacquiescence?
> How are a revenue ruling and a Treasury regulation different? a revenue ruling and a private letter ruling?
> Assume that the building in problem 68 is an apartment building held for investment. In addition to the sale of the building, Anton has the following capital gains and losses during 2017: Short-term capital loss………………………………………………….$ 4,000 Collectibles
> What are revenue rulings? revenue procedures?
> Differentiate a proposed regulation and a temporary regulation.
> Differentiate an interpretive regulation and a legislative regulation.
> What is a Treasury regulation? Is it binding on the courts?
> How are the Joint Conference Committee and the Joint Committee on Taxation different?
> What three reports are issued as part of the legislative process?
> Briefly describe the process by which a new tax law is passed.
> Give examples of how the Code is sometimes used to achieve economic and social objectives.
> What are some things to look out for when reading the Code?
> Name the types of secondary authorities.
> Anton purchases a building on May 4, 2000, at a cost of $270,000. The land is properly allocated $30,000 of the cost. Anton sells the building on October 18, 2017, for $270,000. What is the character of Anton's gain or loss on the sale if he uses the
> Briefly describe the three categories of primary authorities and the types of authorities within each category.
> Differentiate primary tax law authorities and secondary tax law authorities.
> Briefly describe the steps involved in tax research.
> What is the distinction between tax compliance and tax planning?
> Use any print or CATR service to find the following information about the Protecting Americans from Tax Hike Act of 2015: a. The public law number and enactment date b. A reference to the full text of the act c. A secondary authority that discusses the a
> Use any print or CATR service or the Internet to find the name of a 1995 Supreme Court decision involving the taxability of a settlement received as compensation for age discrimination. Find the name of the case, a standard legal citation, and the date t
> Use any print or CATR service or the Internet to find a Code section(s) on the following general tax concepts topics. For each item, indicate the Code section number(s) and the full title of the relevant Code section(s). a. Income tax rates for individu
> Use any print or CATR service or the Internet to find a Code section(s) on the following property and cost recovery topics. For each item, indicate the Code section number(s) and full title of the relevant Code section(s). a. Basis of player contracts on
> Use any print or CATR service or the Internet to find a Code section(s) on the following loss topics. For each item, indicate the Code section number(s) and full title of the relevant Code section(s). a. Bad debts b. Net operating loss deduction c. Passi
> Use any print or CATR service or the Internet to find a Code section(s) on the following deduction topics. For each item, indicate the Code section number(s) and full title of the relevant Code section(s). a. Charitable contributions b. Dividends-receive
> Manuel is negotiating the sale of two of his rental properties. He has an offer of $500,000 for each condo. Manuel bought one condo in 1986 for $400,000 and has deducted depreciation of $185,000 using ACRS (accelerated depreciation). Straight-line dep
> Use any print or CATR service or the Internet to find a Code section(s) on the following income topics. For each item, indicate the Code section number(s) and full title of the relevant Code section(s). a. Discharge of indebtedness b. Exclusion for emplo
> What are some advantages of CATR?
> Assume that you have found an excellent article in Tax Notes that provides a favorable interpretation of Sec. 469. Can you rely on that article as authority for your position? In general, what role do tax periodicals and newsletters play in tax research
> When can a researcher rely on an editorial opinion expressed in the tax services?
> Describe the two major categories of tax services.
> Provide the correct citations for the following: a. The fifteenth revenue procedure issued in 1993 and found on page 12 of the third Internal Revenue Bulletin issued in 1993. b. Subsection (a) of the first temporary income tax regulation interpreting Sec
> Interpret the following citations: a. Senate Finance Committee, S. Rep. No. 2, 97th Cong., 2d Sess. (April 15, 1982). b. LTR 8101067. c. Rev. Proc. 78-172, 1978-2 C.B. 22. d. Lacy v. Comm., 344 F.2d 123, 89-1 USTC ¶1221, 43 A.F.T.R. 89-2233 (9th Cir., 19
> Assume that the Supreme Court interprets a certain Code section in a manner that members of Congress believe is contrary to what they meant when they enacted that part of the Code. What (if anything) can Congress do?
> Do district courts have to follow the decisions of all circuit courts?
> What is meant by the Golsen rule?
> Nadia sells land for $4,000 and the buyer assumes her $13,000 mortgage. She pays $1,000 in real estate commissions on the sale. Identify the tax issue(s) posed by the facts presented. Determine the possible tax consequences of each issue that you ident
> What are the three trial courts? Which is most important?
> Name the subdivisions of the Internal Revenue Code.
> The Internal Revenue Code is just one part of the U.S. Code. Explain.
> On what grounds have tax protesters challenged the income tax?
> Use any print or CATR service or the Internet to find the Revenue Ruling or Revenue Procedure that provides instructions on requesting a letter ruling. Indicate the number of the Revenue Ruling or Revenue Procedure, and the IRS reference.
> What is meant by the history of a cited case?
> Differentiate a cited case and a citing case.
> Why do some court decisions have two or three different citations?
> What does it mean when the Supreme Court issues a writ of certiorari?
> How many chapters are within Subtitle A?
> Bernadero Corporation sells a construction crane with an adjusted basis of $32,000 for $37,000. The corporation paid $50,000 for the crane. Identify the tax issue(s) posed by the facts presented. Determine the possible tax consequences of each issue th
